Denim Aces Test for B-T-S Bucks

A fusion of color and promotion are helping denim make its fall numbers.

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Denim is battling the calendar, the economy and the rest of fashion to maintain its status as teenagers’ favorite back-to-school wear.

This story first appeared in the August 24, 2011 issue of WWD.  Subscribe Today.

And thanks in part to aggressive price promotions, it appears to be winning as b-t-s selling enters its home stretch.

The b-t-s season got off to a strong start before hitting a bit of a midsummer lull and jeans sales, a critical component of the season, generally have followed suit. While the remaining b-t-s dollars are being held onto tightly by cautious consumers, colored denim has continued to show notable strength, in many cases outstripping relatively modest supplies, and skinny and even skin-tight silhouettes, often in stretch denim, are quickly gaining favor with female teens and young adults. Retailers, vendors and analysts have also reported positive reactions to darker washes and cropped-bottom jeans but were less enthusiastic about flared-bottom models.

Despite price increases brought on by the higher cost of cotton, jeans continue to serve as an important promotional lure for stores. Observers give Abercrombie & Fitch Co. high marks for the “reengineering” of its denim assortment to incorporate different fits, silhouettes and fabrics, but just as important to the recent success of its jeans offering has been its aggressive pricing policy, at both the flagship and Hollister divisions, which in many cases has seen prices cut by 50 percent.

Michael Jeffries, chairman and chief executive officer of A&F, told investors on the company’s second-quarter conference call last week, “We are very optimistic about our [denim] offerings, and we would hope that, over time, the U.S. could become less promotional.” He added, “I think it’s clear, and everyone should understand, that our back-to-school strategy was to get our new fits on as many new customers and old customers as possible.”

Analyst Janet Kloppenburg, president of JJK Research in Scarsdale, N.Y., pointed out, “Retailers right now are using denim as a traffic driver. The idea is to bring them into the store with a good value price point on denim. The good news is that they’ll often buy two tops for each pair of jeans and get extra markup on the add-on purchases and possibly higher markup overall.”

Because of the imbalance between supply and demand, Kloppenburg believes that colored denim will not only bolster stores’ margins but transcend b-t-s selling and become an important part of the third- and fourth-quarter offerings as well. “Colored is hot and it’s not ubiquitous, at least not yet,” she said. “Red seems to be the best color and royal blue is selling very well, too. And the importance of color in jeans should also enhance the retailer’s opportunity to sell the right tops to go with the new jeans.”

During recent conference calls, a number of retailers reported that, while their denim is selling well, it could be doing better if not for supply issues. Lisa Harper, ceo of Hot Topic Inc., said that the firm had done away with the $19 promotions “that lasted almost the entire month of August last year, and some other aggressive promotions,” and instead opted for a buy-one-get-one-free offer that’s “very consistent with the type of promotional activity that’s out there in the juniors market.” The retailer is looking to build a year-round denim business in both men’s and women’s and, with the help of better marketing and “the right fits and finishes,” believes it is on the right track.

Harper’s only complaint: “We basically are running out of inventory in denim.…We didn’t anticipate it being this successful, but we are restrained by inventory situations at this point which we’re chasing.”

Susan McGalla, ceo of The Wet Seal Inc., said that core denim at $19.50 is “certainly working” but that quality issues had left the firm with less denim than it had planned.

Overall, however, lack of demand has been a bigger problem than lack of supply. According to figures tabulated by The NPD Group, dollars spent on women’s jeans declined 1.5 percent to $8.5 billion in the 12 months ended June 30 despite a 0.2 percent increase in units to 373.2 million. Average prices dropped 1.8 percent to $22.77. In all cases, the percentage performances were inferior to those of the women’s sportswear market, where sales fell 0.4 percent to $66.59 billion. While men’s sportswear experienced increases of 3.6 percent and 3.7 percent in dollars and units, respectively, jean sales were down 3.3 percent, to $5.17 billion, and units were off 2.8 percent, to 219.8 million.

Marshal Cohen, NPD’s chief industry analyst, said the numbers indicate a far more discerning consumer who, at least in recent weeks, might have been shocked by economic events into an even more tight-fisted approach to spending.

“The consumer is accepting price increases but in some cases trading down, and that’s become easier because so many of the midtier and even lower-midtier stores are doing a better job of getting a product to the consumer that has some of the same attributes as the higher-end people,” he said. “A lot of stores are bringing a premium-type product to the consumer at not-so-premium prices. I don’t think it’s as much a matter of people buying different things or less expensive things in a particular store; there’s less store loyalty and more of a shift in the stores where people are shopping.”

That tendency has been accelerated, he noted, both by the recent fragile state of the economy and by the longer-term trend towards Internet and social media use. Recent stock market declines and global debt worries have put parents in a more somber mood and less inclined to spend heavily on their kids’ jeans. “The junior consumer is someone who goes online for just about everything,” Cohen stated. “Now, they’re going on the Internet to find jeans they want at a price their parents can live with.”

While many schools have already opened in the South and Southwest, the bulk of b-t-s shopping still lies ahead. According to a study conducted by BIGresearch and released by the National Retail Federation Tuesday, 28.3 percent of consumers had yet to begin shopping for the season as of Aug. 11, up from 26.8 percent a year ago. But 35 percent had done at least half of their b-t-s purchasing, up from 34.7 percent last year. The three most popular destinations for those with shopping still ahead of them were discount stores (56.9 percent), department stores (47.1 percent) and clothing stores (40.8 percent), trailed by office supply stores (33.4 percent) and online shopping (21.7 percent).

While fashion and novelty have helped denim sales hold their own in a tough economy, there is concern that some junior customers have moved on. Richard Jaffe, analyst at Stifel, Nicolaus & Co., asked executives at Aéropostale Inc. last week, “Is it possible that the teen uniform that you and other retailers in the teen sector have specialized in…of graphic [T-shirts] and hoodies and torn jeans, is on the wane, that the teen is finding other things, other styles, other looks which are appealing to them?”

Thomas Johnson, Aéropostale’s ceo, replied, “We do believe that there’s been a change in the young girls’ uniform, predominantly on the girls’ side of the business.…And we’re reacting and responding accordingly, and we do feel that we have the right strategies in place to capture that changing market.”

“There has to be something new,” Jeff Van Sinderen, analyst at B. Riley & Co., told WWD. “Fifteen-year-olds may grow out of their jeans, but a lot of women have a lot of denim in the closet already and they’re looking more towards dresses. Today, a merchant needs the right combination of colors, washes, silhouettes, and if it’s not the right combination, it’s got to be marked down. In many cases this season, it’s price increases and their effect on AUR [average unit retail] that’s driving comps up.”

Shopping the aisles at the MAGIC market, Eric Beder, managing director of equity research at Brean Murray, Carret & Co., was struck by how upbeat most retailers appeared and how recent events hadn’t pulled them off their generally positive sales plans for the remainder of the year, in denim and elsewhere.

“Color is the overwhelming trend right now,” he said. “That usually disappears for fall but I think it will carry through 2011. I can see stores stocking yellow into December. It’s such a great trend, a reason to buy which just wasn’t there last year.”

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